Compound Interest Calculator
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What This Tool Does
This calculator shows how an investment grows when interest is earned not just on the original principal but also on the interest already accumulated. Enter your principal amount, interest rate, tenure, and compounding frequency, and it returns your total maturity amount and the interest earned over the period. It works for fixed deposits, savings schemes, SIPs, and any investment where compounding applies.
You can also use this Income Tax Calculator.
How It’s Calculated
The standard compound interest formula is:
A = P × (1 + r/n)^(n×t)
Where:
- P = principal amount
- r = annual interest rate (as a decimal)
- n = number of times interest compounds per year
- t = tenure in years
- A = final amount (principal + interest)
Worked Example:
- Principal: ₹50,000
- Annual interest rate: 10%
- Tenure: 3 years
- Compounding: annually (n = 1)
Year 1: ₹50,000 × 10% = ₹5,000 interest → Balance: ₹55,000
Year 2: ₹55,000 × 10% = ₹5,500 interest → Balance: ₹60,500
Year 3: ₹60,500 × 10% = ₹6,050 interest → Balance: ₹66,550
Total interest earned: ₹16,550
With simple interest, the same deposit would earn only ₹15,000 over three years. The extra ₹1,550 comes entirely from compounding — interest earning interest.
How Compounding Frequency Affects Returns
The more frequently interest compounds, the higher the final amount — even at the same stated annual rate.
For ₹1,00,000 at 10% per annum over 5 years:
- Annual compounding: ₹1,61,051
- Quarterly compounding: ₹1,63,862
- Monthly compounding: ₹1,64,533
- Daily compounding: ₹1,64,866
The difference between annual and daily compounding on this example is over ₹3,800 — purely from frequency. Over larger amounts and longer tenures, this gap grows significantly.
Edge Cases and Special Rules
Compounding frequency vs. stated rate: Banks often advertise an annual rate but compound quarterly or monthly. Always check the compounding frequency — two products with the same headline rate but different compounding schedules will produce different returns.
Effective Annual Rate (EAR): This is the actual annual return after accounting for compounding within the year. A 10% rate compounded quarterly has an EAR of approximately 10.38%. Comparing EAR across products gives a more accurate picture than comparing stated rates alone.
Partial years: If your tenure is not a whole number of years — say 18 months — most calculators convert it to a decimal (1.5 years) and apply the formula accordingly. Results may vary slightly from actual bank calculations depending on how they handle odd-day periods.
Taxes on interest: Compound interest calculators show gross returns. In India, interest income is taxable at your applicable slab rate. TDS may also be deducted at source depending on the investment type and interest threshold. Actual post-tax returns will be lower.
Reinvestment assumption: The compound interest formula assumes all interest is reinvested and no withdrawals are made during the tenure. Partial withdrawals will reduce the compounding effect.
Compound Interest in Common Investment Types
Fixed Deposits: Most bank FDs compound quarterly. The maturity amount shown on your FD receipt is the compound interest output.
National Savings Certificates (NSC): The Indian government annualizes NSC interest rates and compounds annually. You can use this calculator to estimate NSC returns by setting compounding frequency to yearly.
SIP (Systematic Investment Plan): SIP returns involve compounding on mutual fund NAV growth rather than a fixed rate. A fixed-rate compound interest calculator gives an approximate projection — actual SIP returns depend on market performance.
Recurring Deposits: RDs also use compound interest, typically compounded quarterly, but calculated on each installment separately from its deposit date rather than on a lump sum.
Compound Interest vs. Simple Interest
With simple interest, you earn returns only on the original principal — the interest does not itself earn interest. With compound interest, each period’s interest is added to the base for the next calculation, causing the investment to grow exponentially rather than linearly.
For short tenures and small amounts, the difference is modest. Over 10, 15, or 20 years, compounding produces dramatically larger returns — which is why starting early matters significantly in long-term financial planning.
Who Uses This
- Investors comparing FD options across SBI, HDFC, ICICI, and other banks to find the best compounding deal
- Long-term savers projecting how a lump sum will grow over 5, 10, or 20 years
- Students and exam aspirants practicing compound interest problems for banking or finance exams
- Anyone evaluating NSC, PPF, or other government savings schemes to estimate maturity values
- Parents planning for future goals such as education or marriage corpus building
FAQ
What is the difference between compound and simple interest?
Simple interest is calculated only on the principal throughout the tenure. Compound interest is calculated on the principal plus all previously earned interest, causing the balance to grow faster over time.
How do I calculate monthly compound interest?
Use the formula A = P × (1 + r/12)^(12×t), where r is the annual rate as a decimal. Set n to 12 in the calculator above to get monthly compounding results automatically.
Can I use this calculator for SIP returns?
This calculator works with a fixed interest rate and a lump sum principal. SIP returns depend on variable NAV movement rather than a fixed rate, so results will be approximate projections rather than guaranteed figures.
Does compounding frequency matter for short tenures?
For tenures under one year, the difference between compounding frequencies is small. For tenures of five years or more, the frequency has a meaningful impact on the final amount.
Is compound interest taxable in India?
Yes. Interest earned through compounding is treated as income and taxed at your applicable slab rate. The calculator displays pre-tax figures — factor in your tax liability when comparing net returns.
A Note on Results
All figures this calculator produces are estimates based on a fixed rate and the compounding frequency you select. Actual returns on any investment may differ due to changing rates, applicable taxes, and specific terms set by the bank or institution. Use these results for planning and comparison — confirm final figures with your bank or financial advisor before investing.